The government’s high-profile crusade against former Full House actress Lori Loughlin is already beset by a host of problems for the prosecution. A Thursday ruling by the Supreme Court likely made some of those issues even more stark, clear and significant.
Loughlin and her also-charged husband, fashion designer Mossimo Giannulli, are currently battling it out against the U.S. Attorney for the District of Massachusetts over several charges related to and including federal wire fraud and programs fraud stemming from their alleged conduct in the “Varsity Blues” college admissions scandal.
In something akin to legalistic serendipity, the nation’s high court addressed both wire fraud and programs fraud in a case stylized as Kelly v. United States. That ruling tossed convictions from the infamous 2013 New Jersey “Bridgegate” scandal. For a thorough discussion of that case see Law&Crime’s earlier reporting here.
The upshot of the unanimous court’s Thursday morning ruling is this: federal prosecutors are being overzealous, overreaching and overcharging if and when they attempt to gin up novel interpretations of what constitutes “property” or “money” for purposes of the conduct prohibited by the federal fraud statutes.
In Kelly, the court rejected the government’s efforts to categorize commandeered traffic lanes and diverted wage labor as the sort of “money” or “property” envisioned by the statutes. The court cited several pieces of relevant case law to bolster the longstanding presumption that such alleged crimes must relate to an actual property right or interest–including the fraud-limiting precedents of Cleveland v. United States and McNally v. United States.
In Cleveland, the court ruled that a state’s video poker licenses did not qualify as property. In McNally, the court dismissed the notion that “honest services” of government officials qualified as property.
“[The federal fraud statues] bar only schemes for obtaining property,” Justice Elena Kagan noted in her brief and tidy Kelly opinion.
And the Supreme Court’s reasoning tracks heavily with an early April motion to dismiss filed by Loughlin’s and Giannulli’s defense attorneys. Their motion even cites many of the same cases. Law&Crime previously did a deep-dive into that April filing here.
“Since 1987, the Supreme Court has issued a series of rulings defining the statutes’ property limitation,” the defense motion notes. “As the Court has explained, that limitation must be strictly enforced to avoid overcriminalization and to take account of federalism and due process concerns. Those rulings have emphasized that the scope of the fraud statutes is limited to traditional forms of property.”
And while the Supreme Court’s Kelly ruling is expressly about the deceitful behavior of government officials, there is a good deal of discussion about the pitfalls of prospective overcriminalization.
Thursday’s opinion cites Cleveland to bat down “a sweeping expansion of federal criminal jurisdiction” and also pings federal prosecutors for potential “end-run[s]” around Cleveland by prosecutors who rely on the “incidental costs” of deceit, warning that this could result in “the same ballooning of federal power.”
Speaking of hazard, risk and peril, however, Kelly isn’t all good news for Loughlin and her wealthy co-defendants. The ruling explicitly notes that deceit used to obtain “bribes or kickbacks” incurs a necessarily separate legal standard viz. government officials.
“Save for bribes or kickbacks (not at issue here), a state or local official’s fraudulent schemes violate that law only when, again, they are for obtaining money or property,'” Kagan writes.
This language could prove problematic for the defense because it would likely add an additional layer of legal scrutiny even if a court were to determine that the college acceptance offers in question do not qualify as property. Loughlin is also charged under the “intangible” honest services fraud statute.
In other words, the Supreme Court’s Kelly ruling favorably addressed two of the three forms of fraud at issue in Loughlin’s and Giannulli’s case. Additionally, the ruling quickly–and somewhat unfavorably–glossed over the third form of fraud in the power couple’s indictment.
But overall, the spirits of Loughlin, Giannulli and their defense team–reportedly already high with anticipation that the case will be dismissed–are sure to be buoyed by the court’s Kelly decision because it is an adamant refusal to entertain bespoke theories as to what qualifies as “property” under federal fraud statutes.
Federal criminal defense attorney and computer law expert Tor Ekeland praised the high court for their decision in Kelly.
“I’m glad the Court is reigning in these absurdly expansive views of fraud the federal government too often uses to criminalize behavior after the fact,” Ekeland told Law&Crime in an email. “The vagueness of the federal fraud statutes, which generally stand in derogation of the common law in that they don’t require reliance on the fraud by the victim, or any real harm, allows prosecutors to stretch a congressionally well intended statutory elasticity into criminalizing the prosecutorial moral whim of the moment. The federal criminal defense bar is celebrating this victory against federal criminal law’s unwarranted, metastasizing spread.”
[image via Paul Marotta/Getty-Images]
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